The Innovation Ecosystem – Critical But Vulnerable

R&D is a fundamental pillar of our security. It supports our long term economic security and our national security

Ours is an innovation-driven economy. Innovation not only creates new products and markets, it enables productivity improvements in current products and markets. It is one of, if not the most, important elements of our ability to grow GDP. And, R&D is the engine driving innovation, so our long-term economic security depends on healthy R&D

Our national security strategy is built on technological superiority, which requires constant innovation, fueled by R&D.

Our nation has recognized this fundamental truth over many years – if we want prosperity and security we must invest in R&D and in the infrastructure that enables R&D and innovation.

This national innovation ecosystem we have built over time is highly interwoven, and highly dependent on government funding – and it has served America well for decades.

But this innovation ecosystem is presently at high risk due to our federal budget environment, and that risk fundamentally jeopardizes our future prosperity and security.

Let me describe the nature of this ecosystem to illuminate the dependencies and risks.

It all starts with our educational system, primarily our universities. All our universities play a key role in educating the human capital that makes innovation real.

And our nation’s research universities also provide the fundamental research that has enabled just about every one of the modern technologies upon which our economy and security depend.

That research is sometimes sponsored by companies, but far more often, it is sponsored by the federal government – whether it is DoD funding, NSF, NIH, DoE – you name it.

If ever there is federal expenditure that fits the bill of supporting the common good, it is R&D funding, as it drives the research engine that our entire nation, and quite frankly the entire planet, needs for our collective progression and sustainment.

Industry, and sometimes government agencies and labs, take that basic research and develop it into real products and capabilities. That development enables the employment of talent – not just of scientists and engineers, but also of all those who actually build, sell and service the products.

And when it comes to national security, the men and women of our armed forces, our intelligence communities, and other agencies rely on those superior products and capabilities to enable them to do their jobs so incredibly well, and to come back home safely after serving in harm’s way.

This innovation ecosystem has worked very well, but it is vulnerable on numerous fronts, most of which are interconnected.

First, this system requires robust R&D funding, and federal support for that funding comes almost exclusively from the discretionary part of the budget – which turns out to be the part of the budget that has contributed the vast majority of federal budget cuts to address deficit spending. As a percentage of GDP, we are now at the lowest point in discretionary spending since the 1950s. And we have made that reduction just as other nations are doubling down on their investments.

Second, this ecosystem requires a robust and constant supply of exceptional human capital that is focused on R&D. The so-called “STEM” disciplines are the primary drivers of this human capital capacity.

There must be a strong supply of this talent aligned with the demand for the specific capabilities to support our R&D programs in industry, government and academia. The supply of that talent is at considerable risk, and I suspect we will touch on this vulnerability in the panel discussion, and also address opportunities to improve in this area.

And not only is the supply of that talent at risk. Today’s graduates enjoy global opportunities. So there is no guarantee they will contribute to America’s innovation – especially if they observe declining R&D budgets here and rising budgets elsewhere.

And third, apart from government funding, there has to be availability of capital in the financial markets to drive development, build factories, and support the working capital needs of the enterprises that translate the products or research into economic outcomes. And these markets rely on a strong legal framework to protect intellectual property and other aspects of investment.

So all of these elements must work together in an interdependent manner – and a weakness of any elements puts the entire system at risk.

It took our country many years to get this innovation ecosystem working so well, but we are now at risk of undermining it, and handing over our leadership to others who are accelerating their efforts to build their own innovation ecosystems, often modeled after what we created.

We need to recognize that American leadership in technology is not a birthright – we have to continually invest to stay ahead.
As we prepare to transition to the panel discussion, let me make a few concluding remarks to put a bit of a spotlight on the innovation ecosystem vulnerabilities.

First, we must think of R&D as a strategic asset for our nation, rather than a cost that can easily be cut. I think we are making a profound mistake by cutting R&D as we work to address the current federal budget issues.

Are there opportunities for efficiencies and improvements – of course. But we have taken these cuts well beyond what can be recovered through efficiencies.

Further, I believe growing our economy is the best way to address our nation’s long-term deficit challenges, not taking an axe to discretionary spending in the short-term. And we have to invest in R&D to drive long-term growth. So we seem to have it exactly backwards when we are cutting R&D, reducing future growth and thereby compounding our future budget challenges!

Regarding STEM talent, I believe we must continue to look for measurable ways to improve the educational system. And business has a responsibility to take action on this issue. The days of “fire and forget” check writing by business acting solely as philanthropists should end.

Business needs to be an active partner with the educational system – from pre-kindergarten through graduate school.

We need to be part of the solution in the development of the next generation of American workers in STEM, or we will find ourselves lacking the key foundational element for a national innovation ecosystem: well-educated and trained people.

Lastly, I have great respect for the U.S. capital markets, and it is clear that investment capital will flow toward innovative ideas and where a solid business case can be made. Business has to continue to innovate in order to maintain our technology edge. And R&D funding – from government and from the private sector – is necessary to seed that innovation into the future.

I think we are at a defining time in our evolution as a nation.

Will we choose to let our innovation engine sputter along, deprived of the fuel it needs, allowing talent to go elsewhere, and the capital flows that will move with that talent?

Or will we take our foot off the brake, open up the throttle, and drive our innovation engine to ensure America’s prosperity and security into the future?